ghanshyam_pjt

7/31/2019 GHANSHYAM_PJT

1/70

1

PROJECT REPORT

ON

STUDY OF STOCK MARKET AND DISTRIBUTION OF MUTUAL FUNDS

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE DEGREE OF

MASTER IN BUSINESS ADMINISTRATION

ACEDMIC SESSION: 2010-2012

SUPERVISED BY:

SUBMITTED BY:

Miss. SUBHA BHASIN GHANSHYAM

SINGH

R

OLLNO-2211

MBA

4th Sem

L.R. INSTITUTE OF MANAGEMENT

1


2/70

2

JABLI-KYAR, P.O. OACHGHAT, SOLAN (H.P.)

L.R Institute of Management Studies

Jabli-Kyar, P.O., Ochghat, Solan H.P. 173223

------------------------------------------------------------------------------------------------

CERTIFICATE

This is to certify that this project entitled Study on stock market

and distribution of mutual fund- at Religare stock broking ltd

submitted in partial fulfilment of the requirement for the degree of

Master of Business Administration of Himachal Pradesh University,

Shimla -5, by Mr Ghanshyam Singh, Roll No. 2211has been

executed under my supervision and guidance.

The data reported in it are pure. The assistance and help received

during the course of this investigation has been duly

acknowledged. It is further certified that it is original piece of work

and it is working for the degree of Master of Business

Administration.

Project

Advisor

Miss Subha

Bhasin

2


3/70

3

INDEX

__________________________________________________________________

ACKNOWLEDGEMENT

EXECUTINE SUMMARY

OBJECTIVE OF THE STUDY

HISTORY OF THE RELIGARE GROUP

CORPORATE PROFILE OF RELIGARE STOCK BROKING LTD

ACHIEVEMENTS

OBJECTIVES OF THE ORGANIGATION

SERVICES OF THE RELIGARE GROUP

SUMMARY OF INDIAN FINANCIAL SYSTEM

PARTS OF IFS

NATIONAL STOCK EXCHANGE

ORGANIGATION STRUCTURE OF RELIGARE STOCK BROKING LTD

RESEARCH METHODOLOGY

DATA INTERPRETATION AND ANALYSIS

FINDINGS

TOOL AND TECHNIQUES

CONCLUSION

BIBILIOGRAPHY

ANNEXURE

3


4/70

4

ACKNOWLEDGEMENT

I hereby express my profound gratitude to all those respected people who supported me in the completionof this project.

It is indeed a matter of great pleasure and privilege to be able to present this project on study of stock

market and distribution of mutual funds at Religare Securities Ltd.

The completion of the project is a milestone in a students life & its execution is inevitable in the hands o

our guides. I am highly indebted to the project guide Miss Subha Basin for her invaluable guidance and

appreciate her for giving form and substance to this project.

I am also thankful to Religare Securities Ltd. for giving me this valuable opportunity for doing this

project.

I would like to express my deep regards and gratitude to our Centre Head Mr.Nitin Roxwell. It is due to

their enduring efforts, patience and enthusiasm, which has given a sense of direction and purposefulness

to this project and ultimately made it a success.

I would also like to thank our non- teaching staff and our friends who have helped me all the time in one

way or other. Finally I sincerely thank to all those who have rendered their valuable service either directly

or indirectly & helped us for making the project successful.

4


5/70

5

EXECUTIVE SUMMARY

The project is about writing a study of stock market and distribution of mutual funds It required extensive reading

I had to start from the very basics of capital markets, what are they and what role do they perform. Its classification into

primary and secondary markets and the features and functions of both followed this. Valuation of securities and financia

analysis was then incorporated to let the investors know how to assess their investments. Procedures of the stock

exchanges with respect to trading and clearing as well other aspects like , regulations concerning stock exchanges

trading, mutual funds and every other relevant aspect has been covered in the guide.

Thus it is a comprehensive guide on understanding the share markets and mutualfunds and how to invest in them. My

entire focus in writing the guide was to make it simple, brief and concise. A lot of material was read and referred to

before the final draft of the material was made. Websites like www.nseindia.com, bseindia.com, investopedia.com

religare.in and mutualfunds India.com were of great help in this.

This project has covered many criteria and it also helped the retail investor and online traders, as they are moving in

direction to self-learning. More and more customers are trying the option of online trading and investment in mutua

funds because they feel it as a very comfortable and one get more knowledge about the security of their investment.

OBJECTIVES OF THE STUDY

5


6/70

6

1. To enable the investors to know about the various investments in stocks & in mutual fund.

2. To explain the investors about the functioning of markets (NSE, BSE)

3. To enable to comprehend the concept of distributing and marketing the mutual funds

INTRODUCTION

RELIGARE GROUP

Religare, a Ranbaxy promoter group company, is one of Indias largest and fastest growing integrated financial services

institutions. The company offers a large and diverse bouquet of services ranging from equities, commodities, insurance

broking, to wealth advisory, portfolio management services, personal finance services, Investment banking and

institutional broking services. The services are broadly clubbed across three key business verticals- Retail, Wealth

management and the Institutional spectrum. Religare Enterprises Limited is the holding company for all its businesses

structured and being operated through various subsidiaries.

Religares retail network spreads across the length and breadth of the country with its presence through more than 900

locations across more than 300 cities and towns. Having spread itself fairly well across the country and with the promise

of not resting on its laurels, it has also aggressively started eyeing global geographies. Religare a company promoted

controlled and managed by the promoters of Ranbaxy was founded with the vision of providing integrated financial care

driven by relationship of trust. To realize its vision, the company provides both, fund-based and non-fund based financia

services to its clients. These services include Broking (Stocks and Commodities), Depository Participant Services, and

Advisory on Mutual Fund Investments. The clients of the company greatly benefit by its strong research capability

which encompasses fundamentals as well as technicals.

Religare provides integrated financial solutions to its corporate, retail and wealth management clients through Religare

Securities Limited, Religare Finvest Limited, Religare Commodities Limited and Religare Insurance Broking Limited

Today, we provide various financial services which include Investment Banking, Corporate Finance, PortfoliManagement Services, Equity & Commodity Broking, Insurance and Mutual Funds. Plus, theres a lot more to com

your way.

Religare in recent past has been constantly innovating in terms of the product and services, which it offers, andin this respect it has started a premium NRI, FIs, HNIs, and Corporate Servicing group. This group specificallycaters to the growing investment needs of these premium client categories by taking all their portfolio investmendecisions depending upon their risk / return parameter.

6


7/70

7

Religare has a very credible team in its Research & Analysis division, which not only caters to the needs of ouInstitutional clients but also gives valuable input to Investment Dealers / Investors.

Religare is also giving in house depository services to its clients and it is amongst the leading Depository servicproviders in the country managing more than Rs. 6000 crores worth of shares under its electronic custody.

Religare among capital market investment fraternity has carved a niche in performance levels. We endeavorconstantly to our motto of providing customized services to our clients.

Religare Business Partner Concept has resulted in opening our branches all over the country, therebypioneering the concept of partnership to reach multiple locations. We do this in partnership with existing markeparticipants, who can utilize our corporate backing coupled with our technical and back office support to enhancthe business opportunities available to them from their area.

ACHIEVEMENTS

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the to top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT uses in India by MIS Asia

Full Fledged IT driven operations.

OBJECTIVES

To achieve and retain leadership, RELIGARE shall aim for complete customer satisfaction, by combining it

human and technological resources, to provide superior quality financial services. In the process, RELIGARE

will strive to exceed Customer's expectations.

7


8/70

8

As per the Quality Policy, RELIGARE will:

Build in-house processes that will ensure transparent and harmonious relationships with its clients and investor

to provide high quality of services.

Establish a partner relationship with its investor service agents and vendors that will help in keeping up its

commitments to the customers.

Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as

to respond to customer's needs.

Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics

Use state-of-the art information technology in developing new and innovative financial products and services tomeet the changing needs of investors and clients.

Strive to be a reliable source of value-added financial products and services and constantly guide the individuals

and institutions in making a judicious choice of same.

Strive to keep all stake-holders(shareholders, clients, investors, employees, suppliers and regulatory authorities

proud and satisfied.

8


9/70

9

The GroupThe Group

Pharma Healthcare

Diagnostics

Financial

Services

9


10/70

10

10

GROUP ENTITIES

Among top 10Among top 10

generic Pharmageneric Pharma

co. across theco. across the

globe and largestglobe and largest

Pharma CompanyPharma Company

in Indiain India

ManuManufactufacturingringoperoperationation

s in 7s in 7

councountriestries

ProdProductsuctssoldsoldinin125125councountriestries

Sales ofSales ofUS $US $1.171.17billiobillionn

ManuManufactufactures &res &MarkMarketsets

GeneGenericsricsandandBranBrandeddedGeneGenericsrics

South & SouthSouth & SouthEast AsiaEast Asias largests largest

Pathology labsPathology labs

networknetwork

GlobalGlobalaccreditations andaccreditations andComplianceComplianceComprehensiveComprehensiverange of testsrange of testsFocus on R&DFocus on R&D550 Sample550 Sample

Collection CentresCollection Centresin 360 citiesin 360 citiesacross the globeacross the globeOver 1.5 mnOver 1.5 mnsatisfiedsatisfiedcustomers everycustomers everyyearyear

One of the secondOne of the second

largest hospitallargest hospital

chain in Indiachain in India

Currently1600 bedsCurrently1600 bedsacrossacrossIndia; target ofIndia; target of5,500 hospital5,500 hospitalBeds by 2008Beds by 20088 hospitals in8 hospitals inNational CapitalNational CapitalRegion; 25Region; 25

hospitals acrosshospitals acrossIndiaIndiaEngaged inEngaged inhealthcare,healthcare,

Telemedicine,Telemedicine,education &education &researchresearch

Religare isReligare isamong Indiaamong Indiass

largest financiallargest financial

services houseservices house

reaching morereaching more

than 180than 180

destinations withdestinations with

more than 150more than 150

own offices andown offices and

more than 300more than 300

partner locationspartner locations

Largest in India Largest in

South East Asia

Among Largest

in India

Second Largest

in India


11/70

11

Geographical SpreadGeographical SpreadMore than 150 branch offices across Indiaand more than 300 partner locationscovering approximately more than 180cities & towns.

THE RELIGARE TEAM

Qualification

37%

25%

21%

17%

Graduates MBA/PGDBM

Post-Graduates Professional

THE RELIGARE TEAM

11


12/70

12

Aver age Age on Boar d

>40 yrs5%

25 35 30


13/70

13

THE RELIGARE TEAM

Industry Experience

3 - 10 years

Upto 3 years 3 - 10 years more than 10 Years

RELIGARE STOCK BROKING LIMITED

13


14/70

14

Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock

Exchange (HSE).

RELIGARE Stock Broking Limited, flows freely towards attaining diverse goals of the customer through varied

services. Creating a plethora of opportunities for the customer by opening up investment vistas backed by

research-based advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping

the customer create waves in his portfolio and empowering the investor completely is the ultimate goal.

STOCK BROKING SERVICES

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth

management and wealth accumulation option. The difference between unpredictability and a safety anchor in the

market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight

and choosing one & rescues options with care. This is what we provide in our Stock Broking services.

We offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock

Exchange. More importantly, we make trading safe to the maximum possible extent, by accounting for severa

risk factors and planning accordingly. We are assisted in this task by our in-depth research, constant feedback

and sound advisory facilities. Our highly skilled research team, comprising of technical analysts as well a

fundamental specialists, secure result-oriented information on market trends, market analysis and marke

predictions. This crucial information is given as a constant feedback to our customers.

Our foray into commodities broking has been path breaking and we are in the process of converting existing

traders in commodities into the more organized mainstream of trading in commodity futures, both as a trading

and risk hedging mechanism.

In the future, our focus will be on the emerging businesses and to meet this objective, we have enhanced ou

manpower and revitalized our knowledge base with enhances focus on Futures and Options as well as the

commodities business.

14


15/70

15

Interest on margin money:

With the growth of the internet as a medium for buying and selling of shares the brokerage rates of the brokers in the US

have also come down dramatically. When Internet trading started the brokerage was $19.95 per trade and now it i

possible for $9.95 per trade, which means a fall of 50.12%. Meanwhile the cost of research has been spiraling, as th

brokerage houses have to keep track of everything that is happening in the financial world. So how do the brokerag

houses give facilities at such low costs? The answer lies in putting up the margin money for their clients and earning

interest income. This works in two ways; first they earn interest incomes and secondly since they are putting up the

margin money the clients have more money with which they can buy shares and are hence increasing the brokerage

margin.

Overview of Indian Financial System

The capital markets perform an important function in the allocation of resources. The allocation of resources is

dependent on the health of the various sectors of the economy. In a market driven economy, resources are

channelized to those sectors, which are doing well. The capital markets through organized exchanges ensure

liquidity for funds invested in the corporate sector. Liquidity of the stock market is therefore an important factor

affecting growth. Many profitable projects which have longer gestation periods require long term finance;

however investors may not wish to keep their investments locked for the entire period of the project. A liquid

stock market ensures a quick exit route without incurring heavy costs. Thus development of a vibrant and

efficient market is necessary for creating a conducive climate for investment and economic growth.

The Indian financial system has several facets. A classification from the point of view of regulators is:

Regulatory Authorities

RBI SEBI

Commercial Banks Primary Market

Foreign Exchange Markets Secondary Market

Financial Institutions Derivatives Market

15


16/70

16

Primary Dealers

Commercial Banks include the Public Sector banks, Private Banks and Foreign Banks. The Commercial Banks

are regulated by the RBI under the Banking Regulation Act and Negotiable Instruments Act.

Financial Institutions may be of all India level like IDBI, IFCI, ICICI, NABARD or sectoral financial institutions

like EXIM, TFCIL etc. IFCI was the first term lending institution to be set up. IDBI is the apex development

financial institution set up to provide funds for the rapid industrialization in India.

The participants in the Foreign Exchange markets include banks, financial institutions and are regulated by the RBI.

Primary Dealers are the registered participants of the wholesale debt market. They bid at auctions for Government Debt

treasury bills, which are then retailed to banks and financial institutions who invest in these papers to maintain their

Statutory Liquidity Ratio (SLR).

Reserve Bank of India (RBI)

The Reserve Bank of India is the central banking institution in India. It is the sole authority for issuing bank notes

and the supervisory body for banking operations in India. Even though the Indian currency (rupee) is now floated

in the market, the RBI supervises and administers exchange control and banking regulations, and administers the

government's monetary policy. It is also responsible for granting licenses for new bank branches.

Securities and Exchange Board of India (SEBI)

SEBI was set up as an autonomous regulatory authority by the Government of India in 1988 to protect the

interests of investors in securities and to promote the development of, and to regulate the securities market and

for matters connected therewith or incidental thereto." It is empowered by two acts namely the SEBI Act, 1992

and the Securities Contract (Regulation) Act, 1956 to perform the function of protecting investors rights and

regulating the capital markets.

16


17/70

17

Overview of the Indian Financial Markets

The Indian Financial Markets comprises of Capital Market, the Money Market and the Debt Market. The Capita

Market consists of

A. Primary Market

B. Secondary Market

A. Primary Market

The Primary Market is the place where the new offerings by Companies are made either as an Initial Public Offering

(IPO) or Rights Issue. IPOs are offerings made by the Company for the first time while rights are offerings made to the

existing shareholders.

B. Secondary Market

Secondary Markets consists of the Stock Exchanges where the buy-orders and sell orders are matched in an organized

manner.

The functions of the stock exchange are as follows:

1) It ensures a measure of safety and fair dealing.

2) It translates short-term and medium term investments into long-term funds for companies.

3) It directs the flow of capital to the area of maximum returns and ensures ample investment options for the investors

depending on their risk preference.

4) It induces the companies to raise their standards of performance.

C. Derivatives Market

Derivatives Market is the market for financial instruments whose value is derived from an underlying stock, commodity

or currency. There are innumerable derivative instruments; common amongst them are futures, options, warrants and

swaps. Derivatives trading made its debut in Indian market with the introduction of Sensex and Nifty futures in June

2000.

Derivatives market has the following roles:

17


18/70

18

1) Derivatives allow hedging of market risk.

2) It allows for a separate market to be developed for lending of funds and securities to the market.

3) It helps in making the underlying cash market more liquid.

4) It helps in innovations and the creation of new financial products.

D. Role of Capital Markets

a)The Capital Market is the indicator of the inherent health of the economy.

b)The Capital Market is the largest sources of funds with long or indefinite maturity for companies and thereby enhance

capital formation in the economy.

c)The Capital Market offers a number of investment avenues to investors.

d)It helps in channelising the savings pool in the economy towards investments, which are more efficient and give a

better rate of return thereby helping in optimum allocation of capital in the country.

1.4.Self Regulatory Organizations (SROs)

Securities and Exchange Board of India (SEBI) is authorized to promote and regulate Self-Regulatory Organizations

(SROs) in the Capital markets in India. SROs are practical and effective tools for regulating various kinds of participant

in the securities market. They have byelaws and codes of conduct to bind their members.

Currently, the SROs related to the securities market whose regulatory framework is well established and whichhave actually been functioning are the stock exchanges. Other non-registered SRO is Association of Merchant

Bankers of India (AMBI).

18


19/70

19

1.6. Investment Instruments

A. Fixed Income

Fixed Income instruments include bank deposits, Government securities, Bonds, Debentures, Commercial Paper

(CPs), and Certificates of Deposit (CDs).

Criteria for Investment in Fixed Income Products:

1) Yield to maturity

2) Credit rating of the Security

3) Risk Preference

For fixed income securities, credit risk and interest yield are major decisive factors. Credit rating of the security

published periodically helps the investor in credit risk assessment. Types of fixed income instrument are explained below:

a) Government Securities

Government securities include T-Bills (364,182, 91 & 14 Days); Bonds issued by the Central & State Government, Stat

Financial Institutions, Municipal Bodies, Post Trusts, Electricity Bodies etc. T-Bills are discounted instruments and thes

may be traded with a repurchase clause which are called repos. Repos are allowed in 364,182 & 91 day T-bills and the

minimum repo term is 1 day. These securities are purchased by the Banks, Financial Institutions and Provident Fund

Trusts for their SLR (Statutory Liquidity Ratio) requirements and are normally referred to as gilt-edged securities.

b) Bonds

Bonds may be of many types - they may be regular income, infrastructure, tax saving or deep discount bonds. These ar

investment products with a fixed coupon rate and a definite period after which these are redeemed. The bonds may be

regular income with the coupons being paid at fixed intervals or cumulative in which the interest is paid on redemption

Infrastructure bonds are bonds issued by companies/institutions for utilisation in infrastructure projects. Investment in

these bonds usually are eligible for favourable tax treatment under section 88 of Income Tax Act. Deep Discount Bonds

are bonds, which are issued at a discount to the face value, and an investor is paid the face value on redemption.

c) Debentures

19


20/70

20

Debenturesmay be of three types - fully convertible debentures (FCDs), Partly convertible debentures (PCDs) and non-

convertible debentures (NCDs).

FCDs are debentures whose face value is converted into a fixed number of Equity shares at a fixed price. The

price of each equity share received by way of converting the face value of the convertible security i.e. debenture

is called the conversion price. The number of equity shares exchangeable per unit of the convertible security i.e.

debentures is called the conversion ratio.

PCDs are debentures where a portion of the face value is converted into equity shares and the non-convertible

part, called the khoka is redeemed on maturity.

d) Public Deposits

Corporates can raise funds from the public in the form of Fixed Deposits. These deposits are unsecured and are

mainly used for the working capital requirements. These unsecured public deposits are governed by the

Companies (Acceptance of Deposits) Amendment Rules 1978. Under this rule:

i) Public Deposits cannot exceed 25% of the share capital and free reserves

ii) The maximum maturity period is 3 years while the minimum is 6 months.

e) Certificate of Deposits

Certificates of Deposits are short term funding instruments issued by Banks and Financial Institutions at a discount to th

face value. Banks can issue CDs for a duration of less than 1 year while FIs can only issue it for more than 1 year. The

issuing bank or financial institution cannot repurchase these instruments. These are normally used by corporate fo

meeting their short-term requirements.

f) Commercial Papers (CPs)

CPs represents short term unsecured promissory notes issued by firms with a high credit rating. The maturity of these

varies from 15 days to a year sold at a discount to the face value and redeemed at the face value. CPs can be issued by

companies which have a minimum networth of Rs.4 Crores and needs a mandatory credit rating of minimum P2

(CRISIL), D2 (Duff & Phelps), PR2 (Credit Analysis & Research), A2 (ICRA). The rating should not be more than 2

months old. It can be issued for a minimum amount of Rs.25 lakhs and more in multiples of Rs.5 Lakh.

20


21/70

21

B. Equity Shares

Equity share denotes a unit of owners capital of a corporate. It may further be classified as either a) Ordinary or

b) Preference. Ordinary shares do not carry any fixed rate of return but carry voting rights. The equity

shareholders are paid dividend depending on the profitability of the firm, which is proposed by the Board and

passed in the Annual General Meeting of the company. Preference Shareholders are entitled to a fixed percentage

of dividend per year and they have preference in the payment of dividend over the ordinary shares. The

preference shares can also be of Convertible or the non- Convertible types. Sometimes shares issued at the time

of the initial offering (IPOs) or Rights Issue may be accompanied by a warrant which entitles the holder to

subscribe to a fixed number of shares after a mentioned period of time at a fixed price. These warrants are

sometimes listed and traded on the exchange as a security.

Mutual Fund Units

Contents:

1 History

2 Usage

3 Net asset value 4 Turnover

TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE

Open Ended

Closed Ended

BY NATURE OF INVESTMENT

Equity

Bond

Gilt

Money Market

Debt

Sector

Index

Hybrid

21
http://en.wikipedia.org/wiki/Mutual_fund#History%23Historyhttp://en.wikipedia.org/wiki/Mutual_fund#Usage%23Usagehttp://en.wikipedia.org/wiki/Mutual_fund#Net_asset_value%23Net_asset_valuehttp://en.wikipedia.org/wiki/Mutual_fund#Turnover%23Turnoverhttp://en.wikipedia.org/wiki/Mutual_fund#History%23Historyhttp://en.wikipedia.org/wiki/Mutual_fund#Usage%23Usagehttp://en.wikipedia.org/wiki/Mutual_fund#Net_asset_value%23Net_asset_valuehttp://en.wikipedia.org/wiki/Mutual_fund#Turnover%23Turnover


22/70

22

BY INVESTMENT OBJECTIVE

Growth

Income

Value

Balanced

o Tax-Saving

7 Mutual funds vs. other investmentso 7.1 Share classes

o 7.2 Load and expenses

8 Criticism of managed mutual fundso 8.1 Scandals

9 References

Mutual fund

A mutual fund is a form of collective investment that pools money from many investors and investstheir money in stocks,bonds, short-term money market instruments, and/or other securities. In a mutualfund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, andcollects the dividend or interest income. The investment proceeds are then passed along to the individuainvestors. The value of a share of the mutual fund, known as the net asset value per share (NAV), iscalculated daily based on the total value of the fund divided by the number of shares currently issuedand outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1940 (the primaryregulatory statute governing investment companies), a mutual fund is one of three basic types of investmencompanies available in the United States. Outside of the United States (with the exception ofCanada, which

follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. Inthe United Kingdom and western Europe (including offshore jurisdictions), other forms of collectiveinvestment vehicle are prevalent, Including unit trusts, open-ended investment companies (OEICs), SICAVsand unitized insurance funds.

In Australia the term "mutual fund" is generally not used; the name "managed fund" is used instead. However,"managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in whichinvestors' money is managed by a third party (NB: usually an investment professional or organization). Mostmanaged funds are open-ended (i.e., there is no established maximum number of shares that can be issued);however, this need not be the case. Additionally the Australian government introduced a compulsorysuperannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this

term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on whenmoney invested in it can be accessed.

History:

Massachusetts Investors Trustwas founded on March 21, 1924, and, after one year, had 200 shareholders and$392,000 in assets. The entire industry, which included a few closed-end funds, represented less than $10 millionin 1924.

22
http://en.wikipedia.org/wiki/Mutual_fund#Mutual_funds_vs._other_investments%23Mutual_funds_vs._other_investmentshttp://en.wikipedia.org/wiki/Mutual_fund#Share_classes%23Share_classeshttp://en.wikipedia.org/wiki/Mutual_fund#Load_and_expenses%23Load_and_expenseshttp://en.wikipedia.org/wiki/Mutual_fund#Criticism_of_managed_mutual_funds%23Criticism_of_managed_mutual_fundshttp://en.wikipedia.org/wiki/Mutual_fund#Scandals%23Scandalshttp://en.wikipedia.org/wiki/Mutual_fund#References%23Referenceshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Net_asset_valuehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Offshore_financial_centrehttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/OEIChttp://en.wikipedia.org/wiki/SICAVhttp://en.wikipedia.org/wiki/Unitised_insurance_fundhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/w/index.php?title=Massachusetts_Investors_Trust&action=edithttp://en.wikipedia.org/wiki/March_21http://en.wikipedia.org/wiki/1924http://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Closed-end_fundshttp://en.wikipedia.org/wiki/Mutual_fund#Mutual_funds_vs._other_investments%23Mutual_funds_vs._other_investmentshttp://en.wikipedia.org/wiki/Mutual_fund#Share_classes%23Share_classeshttp://en.wikipedia.org/wiki/Mutual_fund#Load_and_expenses%23Load_and_expenseshttp://en.wikipedia.org/wiki/Mutual_fund#Criticism_of_managed_mutual_funds%23Criticism_of_managed_mutual_fundshttp://en.wikipedia.org/wiki/Mutual_fund#Scandals%23Scandalshttp://en.wikipedia.org/wiki/Mutual_fund#References%23Referenceshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Net_asset_valuehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Offshore_financial_centrehttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/OEIChttp://en.wikipedia.org/wiki/SICAVhttp://en.wikipedia.org/wiki/Unitised_insurance_fundhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/w/index.php?title=Massachusetts_Investors_Trust&action=edithttp://en.wikipedia.org/wiki/March_21http://en.wikipedia.org/wiki/1924http://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Closed-end_funds


23/70

23

The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock market crash,Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that afund be registered with the Securities and Exchange Commission (SEC) and provide prospective investors with aprospectus that contains required disclosures about the fund, the securities themselves, and fund manager. TheSEC helped draft the Investment Company Act of 1940, which sets forth the guidelines with which all SEC-registered funds today must comply.

With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, therewere approximately 270 funds with $48 billion in assets. The first retail index fund, the First Index InvestmentTrust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industryin his 1951 senior thesis at Princeton University. It is now called the Vanguard 500 Index Fund and is one of thelargest mutual funds ever with in excess of $100 billion in assets.

One of the largest contributors of mutual fund growth was individual retirement account (IRA) provisions addedto the Internal Revenue Code in 1975, allowing individuals (including those already in corporate pension plans)to contribute $2,000 a year. Mutual funds are now popular in employer-sponsored defined contributionretirement plans (401(k)s), IRAs and Roth IRAs.

As of April 2006, there are 8,606 mutual funds that belong to the Investment Company Institute (ICI), thenational association of investment companies in the United States, with combined assets of $9.207 trillion.

Usage:

Mutual funds can invest in many different kinds ofsecurities. The most common are cash,stock, andbonds, butthere are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particularindustry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk(e.g., high-yield orjunk bonds, investment-grade corporate bonds), type ofissuers (e.g., government agencies,corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can

invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarilyforeign securities (international funds).

Most mutual funds investmentportfolios are continually adjusted under the supervision of a professionalmanager, who forecasts the future performance of investments appropriate for the fund and chooses those whichhe or she believes will most closely match the funds stated investment objective. A mutual fund is administeredthrough a parent management company, which may hire or fire fund managers.

Mutual funds are liable to a special set of regulatory, accounting, and tax rules. Unlike most other types ofbusiness entities, they are not taxed on their income as long as they distribute substantially all of it to theirshareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders.

Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxabledistributions can be eitherordinary income orcapital gains, depending on how the fund earned thosedistributions.

BY STRUCTURE

23
http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Congress_of_the_United_Stateshttp://en.wikipedia.org/wiki/Securities_Act_of_1933http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934http://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Prospectus_(finance)http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/John_Boglehttp://en.wikipedia.org/wiki/Princeton_Universityhttp://en.wikipedia.org/wiki/Vanguard_Grouphttp://en.wikipedia.org/wiki/Individual_retirement_accounthttp://en.wikipedia.org/wiki/Internal_Revenue_Codehttp://en.wikipedia.org/wiki/401khttp://en.wikipedia.org/wiki/Roth_IRAhttp://en.wikipedia.org/wiki/Investment_Company_Institutehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Junk_bondshttp://en.wikipedia.org/w/index.php?title=Issuers&action=edithttp://en.wikipedia.org/wiki/Portfolioshttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Ordinary_incomehttp://en.wikipedia.org/wiki/Capital_gainshttp://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929http://en.wikipedia.org/wiki/Congress_of_the_United_Stateshttp://en.wikipedia.org/wiki/Securities_Act_of_1933http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934http://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Prospectus_(finance)http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/John_Boglehttp://en.wikipedia.org/wiki/Princeton_Universityhttp://en.wikipedia.org/wiki/Vanguard_Grouphttp://en.wikipedia.org/wiki/Individual_retirement_accounthttp://en.wikipedia.org/wiki/Internal_Revenue_Codehttp://en.wikipedia.org/wiki/401khttp://en.wikipedia.org/wiki/Roth_IRAhttp://en.wikipedia.org/wiki/Investment_Company_Institutehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Junk_bondshttp://en.wikipedia.org/w/index.php?title=Issuers&action=edithttp://en.wikipedia.org/wiki/Portfolioshttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Ordinary_incomehttp://en.wikipedia.org/wiki/Capital_gains


24/70

24

Open-ended fund

An open-ended fund is equitably divided into shares (or units) which vary in price in direct proportion to the

variation in value of the funds net asset value. Each time money is invested new shares or units are created to

match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price

In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying

assets

Closed-ended fund

A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The share

are then traded on an exchange or directly through the fund manager to create a secondary market subject to

market forces. If demands for the shares are high they may trade at a premium to net asset value. If demand i

low they may trade at a discountto net asset value. Further share (or unit) offerings may be made by the schem

if demand is high although this may affect the share price.

BY NATURE OF INVESTMENT

Equity fundsAn equity fund, which mainly consists of stock investments, is the most common type of mutua

fund. Equity funds hold 49 percent of total funds invested in mutual funds in the United States. Oftentimes equity

funds focus investments on particular strategies and certain types of companies.

Bond funds

Bond funds account for 18% of mutual fund assets. Types of bond funds include term funds, which have a fixed

set of time (short, medium, long-term) before they mature. Municipal bond funds generally have lower returns

but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield o

junk bonds. With the potential for high yield, these bonds also come with greater risk.

Gilt Funds

Gilt funds are those that invest in several different types of medium and long-term government securities in

addition to top quality corporate debts. Gilts originated in Britain. Gilt funds differ from bond funds because

24


25/70

25

Bond funds invest in corporate bonds, government securities and money market instruments. Gilt funds stick to

high quality-low risk debt, mainly government securities.

Money market funds

Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least

risk, as well as lower rates of return. Unlike certificate of deposits (CDs), assets in money market funds are liquid

and redeemable at any time.

Sector Funds

Sector funds invest in individual industries such as banks or technology. Of the 912 new funds created in

2000,most were sector funds mainly representing the Internet sector. When a sector is very narrow, it is called

Fad Funds. Sometimes they start off with a spectacular flash earning 100%or more.

Hybrid Funds

These are sometimes referred to as balanced funds. Theyre mutual funds that invest in a mix of stocks and

bonds (typically 60% stock, 40% bond). They give investors a single option for achieving diversificationHybrid

funds are great for investors who are looking for a single investment vehicle to create a diversified portfolio. I

you dont want to mess around with owning a number of different mutual funds, a hybrid fun will take care of al

of this

BY INVESTMENT OBJECTIVE

Growth Funds

A mutual fund whose aim is to achieve capital appreciation by investing in growth stocks. They focus on

companies that are experiencing significant earnings or revenue growth, rather than companies that pay ou

dividends. The hope is that these rapidly growing companies will continue to increase in value, thereby allowing

the fund to reap the benefits of large capital gains. In general, growth funds are more volatile than other types o

funds, rising more than other funds in bull markets and falling more in bear markets.

Income Funds

25


26/70

26

Mutual fund designed to produce current income for shareholders. Some examples of income funds ar

government, mortgage-backed security, municipal, international, and junk bond funds. Several kinds of equity

oriented funds also can have income as their primary investment objective, such as utilities income funds and

equity income funds. All distributions from income funds are taxable in the year received by the shareholde

unless the fund is held in a tax-deferred account such as an IRA or Keogh or the distributions come from tax-exempt bonds, such as with a municipal bond fund.

Value Funds

Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investment

providing dividends as well as capital appreciation. They invest in companies that the market has overlooked

and stocks that have fallen out of favour with mainstream investors, either due to changing investor preferences

a poor quarterly earnings report, or hard times in a particular industry.

Balanced Funds

Fund that buys common stock, preferred stock, and bonds in an effort to obtain the highest return consistent with

a low-risk strategy.

Net asset value:

The net asset value, or NAV, is the current market value of a fund's holdings, usually expressed as a per-shareamount. For most funds, the NAV is determined daily, after the close of trading on some specified financialexchange, but some funds update their NAV multiple times during the trading day. Open-end funds sell andredeem their shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds (theshares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as apremium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typicallyhave its own NAV, reflecting differences in fees and expenses paid by the different classes.

Some mutual funds own securities which are not regularly traded on any formal exchange. These may be sharesin very small or bankrupt companies; they may be derivatives; or they may be private investments in unregisteredfinancial instruments (such as stock in a non-public company). In the absence of a public market for thesesecurities, it is the responsibility of the fund manager to form an estimate of their value when computing theNAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

26
http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)


27/70

27

Turnover:

Turnoveris a measure of the funds securities transactions, usually calculated over a years time, and usuallyexpressed as a percentage of net asset value.

This value is usually calculated as the value of all transactions (buying, selling) divided by 2 divided by the

funds total holdings; i.e., the fund counts one security sold and another one bought as one turnover. Thusturnover measures the replacement of holdings.

In Canada, under NI 81-106 (required disclosure for investment funds) turnover ratio is calculated based on thelesser of purchases or sales divided by the average size of the portfolio (including cash).

Turnover generally has tax consequences for a fund, which are passed through to investors. In particular, whenselling an investment from its portfolio, a fund may realize a capital gain, which will ultimately be distributed toinvestors as taxable income. The process of buying and selling securities also has its own costs, such asbrokerage commissions, which are borne by the funds shareholders.

Functioning of Primary Market

2.1 Introduction

Primary market is a place where a corporate may raise capital by way of a -

a) Public Issue: Sale of securities to members of the Public.

b) Rights issue: Method of raising further capital from the existing shareholders/ debenture holders by offering additiona

shares to them on a pre-emptive basis.

c) Private placement: As its name suggests it involves selling securities privately to a group of investors.

All issues by a new company has to be made at par and for existing companies the issue price should be justified

as per Malegam Committee recommendations by :

1.The earnings per share (EPS) for the last three years and comparison of pre-issue price to earnings (P/E) ratio

to the P/E ratio of the Industry.

2.Latest Net Asset Value,

3.Minimum return on increased net worth to maintain pre-issue EPS. A company may also raise finance from the

international markets by issuing GDRs and ADRs.

27
http://en.wikipedia.org/wiki/Turnoverhttp://en.wikipedia.org/wiki/Capital_gainhttp://en.wikipedia.org/wiki/Turnoverhttp://en.wikipedia.org/wiki/Capital_gain


28/70

28

2.2 Principal steps of a Public Issue

A) Vetting of prospectus by SEBI

A draft prospectus is prepared giving out details of the Company, promoters background, Management, terms of the

issue, project details, modes of financing, past financial performance, projected profitability and others. Additionally a

Venture Capital Firm has to file the details of the terms subject to which funds are to be raised in the proposed issue in a

document called the placement memorandum:

a)Appointment of underwriters: The underwriters are appointed who commit to shoulder the liability and subscribe to the

shortfall in case the issue is under-subscribed. For this commitment they are entitled to a maximum commission of 2.5 %

on the amount underwritten.

b)Appointment of Bankers: Bankers along with their branch network act as the collecting agencies and process the fund

procured during the public issue. The Banks provide temporary loans for the period between the issue date and the dat

the issue proceeds becomes available after allotment, which is referred to as a bridge loan.

c)Appointment of Registrars: Registrars process the application forms, tabulate the amounts collected during the Issue

and initiate the allotment procedures.

d)Appointment of the brokers to the issue: Recognized members of the Stock exchanges are appointed as brokers to the

issue for marketing the issue. They are eligible for a maximum brokerage of 1.5%.

e)Filing of prospectus with the Registrar of Companies: The draft prospectus along with the copies of the agreements

entered into with the Lead Manager, Underwriters, Bankers, registrars and Brokers to the issue is filed with the Registra

of Companies of the state where the registered office of the company is located.

f)Printing and dispatch of Application forms: The prospectus and application forms are printed and dispatched to all th

merchant bankers, underwriters, brokers to the issue.

g) Filing of the initial listing application: A letter is sent to the Stock exchanges where the issue is proposed to be listed

giving the details and stating the intent of getting the shares listed on the Exchange.

28


29/70

29

h)Statutory announcement: An abridged version of the prospectus and the Issue start and close dates are published in

major English dailies and vernacular newspapers.

i)Processing of applications: After the close of the Public Issue all the application forms are scrutinized, tabulated and

then shares are allotted against these applications.

j)Establishing the liability of the underwriter: In case the Issue is not fully subscribed to, then the liability for th

subscription falls on the underwriters who have to subscribe to the shortfall, incase they have not procured the amoun

committed by them as per the Underwriting agreement.

k)Allotment of shares: After the issue is subscribed to the minimum level, the allotment procedure as prescribed by SEB

is initiated.

L)Listing of the Issue: The shares after having been allotted have to be listed compulsorily in the regional stock exchange

and optionally at the other stock exchanges.

B) Cost of a Public issue

The cost of a public issue works out between 8% to 12% depending on the issue size but the maximum has been

specified by SEBI as under:

For Equity & Convertible debentures For Non Convertible debentures

When the issue size is upto 5 crores =

Mandatory costs + 5%

When the issue size is greater than 5 crores

: Mandatory costs + 2%

When the issue size is upto 5 crores =

Mandatory costs +2%

When the Issue size is greater than 5

crores : Mandatory costs + 1%

**Mandatory costs includes underwriting commission, brokerage, fees of the lead managers of the issue, expenses on

statutory announcements, listing fees and stamp duty.

C) Eligibility for an IPO

29


30/70

30

An Indian Company is allowed to make an IPO if:

1.The company has a track record of dividend paying capability for 3 out of the immediately preceding 5 years.

2.A public financial institution or scheduled commercial banks has appraised the project to be financed through the

proposed offer and the appraising agency participates in the financing of the project to the extent of at least 10% of th

Project cost. Typically a new company has to compulsorily issue shares at par, while for companies with a track record

the shares can be issued at a premium. Before the advent of SEBI the prices of shares were valued as per the Controller

of Capital Issues (CCI).

2.3 Rights Issue

The rights issue involves selling of securities to the existing shareholders in proportion to their current holding. When a company

issues additional equity capital it has to be offered in the first instance to the existing shareholders on a pro-rata basis as per Section

81 of the Companies Act, 1956. The shareholders may by a special resolution forfeit this right, partially or fully by a specia

resolution to enable the company to issue additional capital to the public or alternatively by passing a simple resolution and taking

the permission of the Central Government.

2.4 Private Placement

A private placement results from the sale of securities by the company to one or few investors. The distinctive features o

private placement is that:

There is no need for a formal prospectus as well as underwriting arrangement

The terms of the issue are negotiated between the company and the investors

The issuers are normally the listed public limited companies or closely held public or private limited companies which

cannot access the primary market. The securities are placed normally with the Institutional investors, Mutual funds o

other Financial Institutions.

2.5 SEBI Guidelines for IPOs

1. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a

Rights issue.

2. Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock

exchange. For listing an IPO on the NSE firstly, Paid up capital should be Rs.20 Crores, secondly the

issuer or the promoting company should have a track record of profitability and thirdly the projec

should be appraised by a financial Institution, banks or Category I merchant bank. For knowledge based

30


31/70

31

companies like IT the paid up capital should be Rs.5 Crores, but the market capitalization should be a

least Rs.50 Crores. It is mandatory for a company to get its shares listed at the regional stock exchange

where the registered office of the issuer is located.

3. A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till th

expiry of 3 years from the date of issuance of securities.

4. In an Issue of more than Rs. 100 crores the issuer is allowed to place the whole issue by book-building

5. Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than

1000 shares.

6. All the listing formalities for a public Issue has to be completed within 70 days from the date of closur

of the subscription list.

7. There should be at-least 5 investors for every 1 lakh of equity offered.

8. Quoting of permanent Account number or GIR No. in application for allotment of securities i

compulsory where monetary value of Investment is Rs.50,000/- or above.

9. Firm Allotment to permanent and regular employees of the issuer is subject to a ceiling of 10% of th

issue amount.

10. Indian development financial institutions and Mutual Fund can be allotted securities upto 75% of th

Issue Amount.

11. Allotment to categories of FIIs and NRIs/OCBs is upto a maximum of 24% which can be furthe

extended to 30% by an application to the RBI - supported by a resolution passed in the General Meeting

12. 10% individual ceiling for each category a) Permanent employees b) Shareholding of th

promoting companies.13. Securities issued to the promoter, his group companies by way of firm allotment and reservation have

lock-in period of 3 years. However shares allotted to FIIs and certain Indian and multilatera

development financial institutions and Indian Mutual Funds are not subject to Lock-in periods.

14. The minimum period for which a public issue has to be kept open is 3 working days and the maximum

for which it can be kept open is 10 working days. The minimum period for a rights issue is 15 working

days and the maximum is 60 working days.

15. A public issue is effected if the issue is able to procure 90% of the Total issue size within 60 days from

the date of earliest closure of the Public Issue. In case of over-subscription the company may have theright to retain the excess application money and allot shares more than the proposed issue which i

referred to as the green-shoe option.

16. A rights issue has to procure 90% subscription in 60 days of the opening of the issue.

17. 20% of the total issued capital , if the company is an unlisted one with a three year track record o

consistent profitability Else in all cases the following slab rate apply :

31


32/70

32

Size of Capital issued (Including Premium) Contribution %

Less than Rs.100crores 50%

> 100 crores upto 300 crores 40%

> 300 crores up to 600 crores 30%

> 600 crores 15%

18. Promoters contribution is subject to a lock-in period of 3 years.

19. Refund orders have to be dispatched within 30 days of the closure of the Public Issue.

20. Refunds of excess application money i.e. for un-allotted shares have to be made within 30 days of the

closure of the Public Issue.

2.6. Listing on Stock Exchanges

The Stock Exchange, Mumbai has notified new listing guidelines from 1st December, 2000 for companies listed on othe

Stock Exchange and seeking listing at BSE, the threshold limit will be Rs. 3 crores of minimum issued equity capital and

the following criteria will be applicable:

1. Company should have profit making track record for at least three years.

2. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves excluding

revaluation reserves).

3. Minimum market capitalization of the listed capital should be Rs.20 crores, based on average price o

last six months.

4. Number of days traded during last six complete months should be minimum 50% of the total tradin

days during the same six months on any stock exchange.

5. Minimum Average volume traded per day during the last three complete months should be 1000 share

and minimum 5 trades per day.

6. Minimum 25% of the company's issued capital should be with public (inclusive of bodies corporate) an

minimum 15 shareholders per Rs.1 lakh of capital in the public category.

7. The company should be agreeable to sign an agreement with CDSL & NSDL for demat tradin

etc.

32


33/70

33

The Stock Exchange, Mumbai has decided that for new companies whose draft offer documents are received

w.e.f. 1st December, 2000 the threshold limit for listing on The Stock Exchange will be issued equity capital of

Rs.10 crores and post issue net worth (equity capital + free reserves excluding revaluation reserve) of Rs.20

crores.

The Exchange has also decided that for new companies in high technology (i.e. information technology, internet,

e-commerce, telecommunication, media including advertisement, entertainment etc.) whose draft offer

documents are received w.e.f. 1st December, 2000, the following criteria will be applicable:

1. The total income/sales from the main activity, which should be in the field of information technology

internet, e-commerce, telecommunication, media including advertisement, entertainment etc. should not be

less than 75% of the total income during the two immediately preceding years as certified by the Auditors o

the company.

2. The minimum post-issue paid-up equity capital should be Rs.5 Crores.

3. The minimum market capitalization should be Rs.50 Crores. (The capitalization will be calculated by

multiplying the post issue subscribed number of equity shares with the Issue price).

4. Post issue networth (equity capital + free reserves excluding revaluation reserve) of Rs.20 Crores.

2.7 GDR And Its Features

Global Depositary Receipts means any instrument in the form of a depositary receipt or certificate (b

whatever name it is called) created by the Overseas Depositary Bank outside India and issued to non-residen

investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company. A

GDR issued in the USA is an American Depositary Receipt (ADR). Among the Indian companies Reliance

Industries Limited was the first company to raise funds through a GDR issue.

A) Salient Features of a GDR

1) The holder of a GDR does not have voting rights

2) The proceeds are collected in foreign currency thus enabling the issuer to utilize the same fo

meeting the foreign exchange component of project cost, repayment of foreign currency loans

meeting overseas commitments and for similar other purposes.

3) It has less exchange risk as compared to foreign currency borrowings or foreign currenc

bonds.

4) The GDRs are usually listed at the Luxembourg Stock Exchange as also traded at tw

33


34/70

34

other places besides the place of listing e.g. on the OTC market in London and on the privat

placement market in USA.

5) An investor who wants to cancel his GDR may do so by advising the depositary to reques

the custodian to release his underlying shares and relinquishing his GDRs in lieu of shares

held by the Custodian. The GDR can be canceled only after a cooling-period of 45 days. Thedepositary will instruct the custodian about cancellation of the GDR and to release th

corresponding shares, collect the sales proceeds and remit the same abroad.

6) Marketing of the GDR issue is done by the under-writers by organizing road shows whic

are presentations made to potential investors. During the road shows, an indication of th

investor response is obtained by equity called the Book Runner. The issuer fixes the rang

of the issue price and finally decides on the issue price after assessing the investor response a

road shows.

Functioning of Secondary Market

Secondary Market is a market in which securities that have been issued at some previous point of time are traded through

the intermediaries in an organised exchange. These intermediaries may be Stockbrokers or Sub-brokers.

3.1. Stock Exchange

Stock Exchange is a place where the buyers and sellers meet to trade in shares in an organized manner. There are a

present 24 recognized stock exchanges in the country and are governed by the Securities Contracts (Regulation) Act

1956.

3.2. Stock Brokers

According to Section 2 (e) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, a stockbroker means a member of

a recognized stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unless he or she holds a

certificate granted by SEBI.

34


35/70

35

A stockbroker applies for registration to SEBI through a stock exchange or stock exchanges of which he or she i

admitted as a member. A stockbroker may take the form of sole proprietorship, partnership or corporation.

3.3. Sub-Brokers

Sub-broker is a person who intermediates between investors and trading members. Stockbrokers of Indian stock

exchanges are permitted to transact with sub-brokers.

3.4. Capital Adequacy Norms For Brokers

Each stockbroker is subject to capital adequacy requirements consisting of two components:

1. Base minimum capital, and

2. Additional or optional capital related to volume of business.

The amount of base minimum capital varies from exchange to exchange. A SEBI regulation requires

stockbrokers of The Stock Exchange, Mumbai to maintain an absolute minimum of Rs.500,000. The form in

which the base minimum capital has to be maintained is also stipulated by SEBI. Exchange may stipulate higher

levels of base minimum capital at their discretion.

3.5. The Stock Exchange, Mumbai (BSE)

The Stock Exchange, Mumbai which was established in 1875 as "The Native Share and Stockbrokers

Association" (a voluntary non-profit making association), has evolved over the years into its present status as one

of the premier stock exchanges in the country. It may be noted that the Stock Exchange is the oldest one in Asia,

even older than the Tokyo Stock Exchange, which was founded in 1878. Sensex of BSE comprises of 30

companies.

The Stock Exchange, Mumbai (BSE) is generally referred to as the Gateway to the capital market in India. As Indianeconomy is opening up, the Exchange has brought its operations at par with international standards. However, the

objectives and the role of the Stock Exchange, Mumbai has remained the same as enunciated by the charter. These

objectives are:

1. To safeguard the interest of investing public having dealings on the Exchange and the members.

2. To establish and promote honourable and just practices in securities transactions.

35


36/70

36

3. To promote, develop and maintain a well regulated market for dealing in securities.

4. To promote industrial developments in the country through efficient resource mobilisation by way o

investment in corporate securities.

A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation), an

Executive Director, three Government nominees, a Reserve Bank of India nominee and five public

representatives, is the apex body which regulates the Exchange and decides its policies.

A President, Vice-President and an Honorary Treasurer are annually elected from among the elected directors by the

Governing Board following the election of directors.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the

Exchange.

3.6.National Stock Exchange

The National Stock Exchange (NSE) has been set up as a public limited company, owned by the leading institutions o

the country. Industrial and Development Bank of India (IDBI) is a major shareholder of NSE.

The ownership and management of the Exchange is completely separated from the right to a trading members, to trade

on the NSE. The Exchange is managed by a Board of Directors. Decisions relating to market operations are delegated by

the Board to an Executive Committee, which includes representatives from Trading Members, public and th

management.

The NSE has an automated order driven trading system. Member workstations are spread-out throughout the

country and NSEs network is one of the largest interactive VSAT based networks.

Major Indian Indices

A. BSE Sensitive Index (Sensex)

The BSE Sensex comprises of 30 stocks representing a sample of large, well diversified and financially sound

companies. The Sensex represents 14 significant sectors of the Indian economy. The Sensex scrips on an average

account for 52% of trading volumes on a daily basis. The selection criteria for inclusion in the Sensex are:

1. The security should figure in the top 100 companies listed by market capitalization and should

account for a minimum 0.5% of weightage of the index.

2. The scrip should have been traded on every day for the last one year.

36


37/70

37

3. The scrip should be among the top 150 scrips listed by average number of trades and averag

volume per trade.

B. S&P CNX Nifty

This index is calculated and maintained by India Index Services & Products Ltd. (IISL). This company has been

promoted by National Stock Exchange and CRISIL with technical oversight by Standard & Poor Corporation

The constituent stocks in the Nifty index has been selected based on 2 criteria:

1. Market capitalization of the company should be at least Rs. 5 billion

2. Impact cost for Rs. 5 million portfolio should be less than 1.5% and should have traded on

at least 85% of trading days.

Concept of Impact cost

Impact cost is defined as the cost of executing a transaction in a security in proportion to the weightage of its

market capitalization as against the index market capitalization at any point of time.

Calculation - This is the percentage mark up suffered while buying/selling the desired quantity of a security compared to

its ideal price, i.e.,

(best buy + best sell)/2

Order Book

Buy(Qty.) Buy(Price) Sell(Qty.) Sell(Price)

1000 98 1000 99

2000 97 1500 100

1000 96 1000 101

To Buy 1500 Shares

IDEAL PRICE = (99 + 98)/2 = 98.5

ACTUAL BUY PRICE = (1000 X 99 + 500 X 100)/1500 = 99.33

37


38/70

38

(FOR 1500 SHARES) IMPACT COST = (99.33 - 98.5)/98.5 X 100 = 0.84%

C. S&P CNX 500 Equity Index

The S&P CNX 500 includes most companies which are leaders in or are representative of their industries, and reflect the

market as closely as possible. S&P CNX 500 Equity Index currently contains 79 industry groups, including one group fo

diversified companies and one group for miscellaneous. However, the number of industries in the Index and the number

of companies within each industry have been kept flexible, in order to ensure that the Index retains its objective of being

an efficient market indicator.

The criteria for inclusion of a stock in the index are:

1. S&P CNX 500 Equity Index includes only those companies which have a minimum

listing record of six months and a portion of their outstanding share capital held with th

public. In addition these companies must have demonstrated trading liquidity, in terms o

quantum of shares traded and the frequency with which they are traded.

2. S&P CNX 500 Equity Index includes companies that have minimum record of three year

with a positive net worth. The objective here is to screen the companies for sustainability o

operations so that the turnover on the index is minimized.

Trading System of the Stock Exchanges

4.1. Trading System of the National Stock Exchange

The NEAT system is the trading system provided by the National Stock Exchange to its trading members. The term

NEAT is an acronym for National Exchange for Automated Trading. The NEAT CM system supports an order driven

38


39/70

39

market, wherein orders match automatically. Order matching is essentially on the basis of security, its price, time and

quantity.

4.2. Basic Trading Terminology

A. Market Phases

The system is normally made available for trading on all days except Saturdays, Sundays and other holidays. A trading

day typically consists of number of discrete market phases:

a) Pre-Open Phase

The Pre-Open period is applicable only to normal market. Order matching takes place at the end of the session, based on

which an opening price is computed and assigned to all trades of pre-open. Simple Regular Lot and Stop Loss orders can

be entered in this phase.

b) Opening

In this period, all orders that have been entered during the pre-open phase are matched. During this phase, the trading

member cannot login to the system.

c) Open Phase

The open period indicates the commencement of trading activity. During this phase, orders are matched on a continuous

basis. Several activities such as Order Entry, Order Modification and Order Cancellation are allowed during this phase.

d) Market Close

When the market closes, trading in all instruments for that market comes to an end. A message to this effect is sent to all

trading members. No further orders are accepted, but the user is permitted to perform activities like inquiries.

e) Surcon

Surveillance and Control (SURCON) is that period after market close during which, the users have inquiry access only.

After the end of SURCON period, the system processes the data and prepares the system for the next trading day. When

the system starts processing data the interactive connection with the trading system is lost and a message to that effect is

displayed at the trader workstation.

4.3. Market Types

The Capital Market system has four types of markets. These are

A.Normal

39


40/70

40

B.Odd Lot

C.ALBM and

D.Auction Market.

A. Normal Market

All orders in Normal Market have to be of regular lot size or multiples thereof. The Normal market consists of

various book types wherein orders are segregated as Regular Lot orders, Special Term orders, Negotiated Trad

Orders and Stop Loss orders depending on their attributes.

B. Odd Lot Market

An order is called an odd lot order if the order size is less than regular lot size. In an odd-lot market, both the

price and quantity of both the orders (buy and sell) should exactly match for the trade to take place.

C. ALBM Market

The ALBM market refers to the Automated Lending and Borrowing market offered by the NSE. This market is

available for normal market ALBM transactions on Wednesdays and everyday for rolling market.

D. Auction Market

In the Auction Market, auctions are initiated by the Exchange on behalf of trading members for settlement related

reasons. There are 3 types of participants in this market.

a) Initiator: The party who initiates the auction process is called an initiator.

b) Competitor: The party who enters orders on the same side as of the initiator is called

Competitor.

c) Solicitor: The party who enters orders on the opposite side as of the initiator is called a Solicitor

4.4. The Corporate Hierarchy

A trading member has the facility of defining a hierarchy among the users of the NEAT system within his firm. This

hierarchy comprises the Corporate Manager, the Branch Manager and the Dealer. The significance of each type is

explained below:

40


41/70

41

Corporate Manager

Branch 1 Branch 2

Dealer 11 Dealer 12 Dealer 21 Dealer 22 Dealer 23

A. Corporate Manager

The Corporate Manager is a term assigned to a user placed at the highest level in a trading firm. Such a user can perform

all functions such as order and trade related activities, receiving End of Day reports for all branches of the trading

member. The Corporate Manager can define order limits for all branches and users within the firm. For this, the

Corporate Manager is given the facility to set Branch Order Value Limits and User Order Value limits for his firm. H

can view order and trade information for all Branch Managers and Dealers under him. A corporate manager can also

modify or cancel orders and trades entered by any dealer or Branch Manager under him.

B. Branch Manager

The Branch Manager is a term assigned to a user who is next in hierarchy to the Corporate Manager. Such a user

can perform and view order and trade information for all dealers under that branch. He can also modify or cancel

orders and trades entered by dealers under him. He receives End of Day reports for all dealers in that branch.

C. Dealer

Dealers are users at the lowest level of the corporate hierarchy. A Dealer can enter orders and view order and

trade information only for him. He does not have access to information of any other dealer. He receives End of

Day report for his Id alone.

4.5. Order Types And Conditions

41


42/70

42

The system allows the trading members to enter orders with various conditions attached to them as per thei

requirements. Members can enter O (Open) orders for opening a transaction on the system and C (Close) orders for

closing out an existing position in the participant code field in the order entry screen. These conditions are broadly

divided into the following categories:

A. Time Conditions

a) DAY - A DAY order is an order which is valid for the day on which it is entered. If the order is not executed during

the day, the system cancels the order automatically at the end of the day.

b) GTC - A Good Till Cancelled (GTC) order remains in the system until it is cancelled by the user. Consequently, it

spans trading days, if not traded on the day the order is entered. The Exchange notifies the maximum number of days an

order can remain in the system. Currently, all GTC orders get purged on Tuesdays. Each day counted is a calendar day

inclusive of holidays. The days counted are inclusive of the day on which the order is placed and the order is cancelled

from the system at the end of the day of the expiry period.

c) GTD - A Good Till Days (GTD) order allows the user to specify the number of days/date till which the order should

stay in the system if not executed. The maximum day allowed by the system is same as in GTC order. At the end of this

days/date, the order is cancelled from the system. Each day/date counted is a calendar day and inclusive of holidays. The

days/date counted are inclusive of the day/date on which the order is placed and the order is cancelled from system at the

end of the day/date of the expiry period.

d) IOC - An Immediate or Cancel (IOC) order allows the user to buy or sell a security as soon as the order is released

into the system, failing which the order is cancelled from the system. Partial match is possible for the order, and the

unmatched portion of the order is cancelled immediately.

B. Quantity Conditions

a) DQ - An order with a Disclosed Quantity condition allows the user to disclose only a portion of the total order

quantity to the market. For e.g. If the order quantity is 10,000 and the disclosed quantity is 2,000, then only 2,000 is

disclosed to the market. After this quantity is fully matched, a subsequent quantity of 2,000 is disclosed. Thus, totally

five disclosures with the same order number are shown one after the other in the market. The DQ must be at least 10% of

the order quantity.

b) MF - A Minimum Fill (MF) order allows the user to specify the minimum quantity for which an order should be

traded. The quantity of trade involving such an order condition should be at least this minimum quantity specified

Minimum Fill orders are kept in special terms book in the system.

42


43/70

43

C. Price Conditions

A) Limit Orders which specify the rate at which the trader wishes to execute his trade are called Limit Orders.

b) Stop-Loss - Stop Loss orders are released into the market when the last traded price for that security in the

normal market reaches or surpasses the trigger price. The trigger price is the price at which an order gets

triggered from the Stop Loss Book. Before triggering, the order does not participate in matching and cannot ge

traded.

c)Market - Market orders are orders for which price is specified as MKT at the time of order entry. For such orders

the system determines the price.

4.6. Neat Screen

a) Ticker

Ticker displays the series, market type, stock symbol, volume and price at which each successive trade takes place on

the Exchange.

b) Snap Quote

The 'Snap Quote' feature allows a trading member to get immediate market information on any desired security.

c) Most Active Securities

'Most Active Securities' gives a list of the securities with the highest traded value during the day.

d) MBP

'Market by Price' displays the best 5 price points available in each security along with the total order quantity at

these 5 prices.

e) Market Movement

'Market Movement' provides hourly details of particular scrip like buy order quantity, sell order quantity, high

price, low price etc.

43


44/70

44

f) Outstanding Order

'Outstanding Order' provides details of orders not traded, in a security.

g) Previous Trades

Previous trades screen provides details of all trades in a security for the day.

4.7. Trading System of The Stock Exchange, Mumbai

The BSE On-Line Trading system (BOLT) is CMC's implementation of the screen-based on-line trading system

for Bombay Stock Exchange. The BOLT system aims at converting the Open Outcry system of trading to a

screen-based system. Members who are traders on the BOLT system can input both quotes and orders. They can

also report the deals that they executed for any scrip.

4.8. Basic Trading Terminology

A. Pre-Opening Session

In this session, one is allowed to enter only limit orders. This is because the system does not do any matching to generate

trades. This session is meant for entry of orders based on which the opening price of scrips will be calculated by the

system.

User may enter orders one by one at the screen or may wish to batch up the orders for quick entry into the system, using

a previously created file.

The time period for this session is approximately from 9:30 a.m. to 9: a.m.

B. Opening Session

One cannot enter quotes, orders or deals during this session, which lasts for about 5 minutes. This is because the system

computes the opening price for every scrip according to the algorithm defined in the BRS.

All possible trades at opening price are executed and unmatched orders are returned at end of session.

At the end of this session, the opening price of the scrips is displayed on the screen in the Touchline Window.

The time period for this task is approximately 9:45 a.m. to 10:00 a.m.

44


45/70

45

C. Continuous Trading Session

During this session user will be allowed to enter quotes, orders, and deals (Negotiated non- computer deals and Crossed

deals) into the system and carry on his trading activities. User will receive confirmations of the trades executed by him

and have the facility to view his net position and break-even position in scrip. He will also receive the latest market

information and news.

The continuous trading session lasts approximately from 10:00 a.m. to 3:30 p.m.

D. Closing Session

As in the opening session, user will not be allowed to enter quotes, orders or deals. This session lasts for a maximum of

10 minutes.

In this session, the Closing prices of scrips will be computed based on the trades that took place during the day

including trades at opening price, according to the algorithm defined in the BRS. At the end of this session, user will

receive the closing price for each scrip on his workstation in the Touchline window.

The closing session is approximately from 3:30 p.m. to 3:45 p.m.

E. Post-Closing Session

This session is after the closing session and is meant for matching of orders at closing price only. User can enter

orders, which will be matched at closing price. User can also enter negotiated and crossed deals. All

unmatched orders entered during this session will be killed.

It is only in this session that a member broker can see ALL the trades of all his traders on his workstation.

This session lasts approximately from 3:45 p.m. to 4:05 p.m.

F. Breakup Opening

Data processing goes on at backend. During this session traders can not logon.

This session lasts approximately from 4:05 p.m. to 4:15 p.m.

G. Broker Query

During this session the broker can logon as trader 1 and download all the trades done via all his trading work stations.

45

ghanshyam_pjt

Documents